Republic of India

India

Feasibility Study on the Bottom of

the Pyramid (BOP) business

promotion on Drinking Water

Supply with flocculants

Summary

April 2014

Japan International Cooperation（JICA）

Poly-Glu International Co., Ltd.

Kaihatsu Management Consulting, Inc.

OS

JR14-033

Table of Contents

Outlines of Study .................................................................................................................. 1

Summary ............................................................................................................................... 3

Chapter 1 Business environment ................................................................................... 3

Chapter 2 Pilot Project ..................................................................................................... 6

Chapter 3 Business Plan ................................................................................................ 10

Chapter 4 Possibility of collaborating with other JICA schemes .............................. 12

Chapter 5 Development Effect ...................................................................................... 13

Abbreviation BIS Bureau of Indian Standard

BOP Base of Pyramid

FDA Food and Drug Administration

FIPB Foreign Investment Promotion Board

GDIA Genuine Dhamma International Association

GDP Gross Domestic Product

GP Gram Panchayat

JICA Japan International Cooperation Agency

NGO Non-Government Organization

NRDWP National Rural Drinking Water Program

OBC Other Backward Class

ODA Official Development Assistance

PCB Pollution Control Board

PHED Public Health and Engineering Department

RBI Reserve Bank of India

SME Small and Medium Enterprise

UPA United Progressive Alliance

WHO World Health Organization

＜Exchange rate as of April 2014＞

INR 1 = JPY 1.69

Location of Project Site

UDASA

1

Outlines of Study

＜Objective＞

The study aims to examine the feasibility of business which utilizes flocculants developed by

Nippon Poly-Glu International to produce and supply safe drinking water to low-income population

living in the area where people have a difficulty in access to safe drinking water.

＜Project Site＞

Udasa village, Nagpur District, Maharashtra, India

＜Study schedule＞

The study was conducted between June 2012 and April 2014.

Study schedule in Maharashtra is shown in the next page. The activities in August and September

2013 were cancelled due to unfavorable weather conditions.

2

Study Schedule

22 29 6 13 20 27 3 10 17 24 1 8 15 22 29 7 14 21 28 4 11 18 25 2 9 16 23 6 13 20 27 3 10 17 24 3 10 17 24 31 7 14 21 28

Literature review

Field survey

Baseline survey

Develop questionnaire

Implement survey

Data entry

Send data to KMC

Setup treatment facility

Employ staffs

Training

Test water quality

Operation (1st phase)

Review

Operation (2nd phase)

Review

Business plan development

Draft business plan

Review and revise the plan

Survey on potential scaling out

Finalize business plan

Endline survey

Develop questionnaire

Implement survey

Data entry

Send data to KMC

Hold a seminar to disseminate outcomes

Writing reports

Submission of Progress reports

Submission pf Draft final report

Submission of Final report

Survey in Japan Activities by GDIA and staffs Survey in India

January February March April

Survey on present conditions and

business environment

Pilot project

2013 2014

April May June July October November December

3

Summary

Chapter 1 Business environment

(1) Overview

India, with its population of 1.2 billion, is a great regional power in South Asia. India has been a

parliamentary democracy, the world’s largest, since its independence in 1947. India began to

liberalize its economy in 1991 and has sustained high economic growth while increasing its presence

in the global economy. To attract foreign investment, the Indian government has been gradually

deregulating its foreign investment regime.

(2) Policies and legal framework for drinking water supply

The national Ministry of Urban Development is in charge of the urban drinking water supply, while

the Ministry of Rural Development takes care of rural areas. Drinking water supply projects are

fundamentally state responsibilities, however; the central government is limited to providing policy

guidance as well as technical and financial assistance to state governments.

Under India’s flagship rural drinking water supply program, the National Rural Drinking Water

Program (NRDWP), state governments are responsible for planning, monitoring, and providing

technical assistance for their water supply projects. The Gram Panchayats (GPs) are responsible for

implementing the projects in their villages.

The Bureau of Indian Standard (BIS) sets India’s water quality standard. To sell drinking water

widely in urban areas, businesses must satisfy a water quality standard, pass a water safety appraisal

by the Pollution Control Board (PCB), and obtain permissions from the Food and Drug

Administration (FDA) and the BIS. However, a business can sell drinking water to a limited number

of people in rural areas if it has obtained permission from the village’s GP.

(3) Present conditions of the drinking water supply

The 2011 census reveals that 32% of India’s households use treated tap water; the rest use untreated

tap water, well water, or surface water. States show wide gaps in their tap water coverage, and tap

water coverage is higher in urban areas than in rural areas.

In Maharashtra, most households in both urban and rural areas use tap water. However, less than

60% of households have access to tap water, while almost 90% of urban households do. Almost half

of rural households use wells, and 10% are dependent on unprotected water sources.

4

Figure 1-1 Water sources in Maharashtra, as a percentage (2008/09)

(Source: http://mahades.maharashtra.gov.in/files/publication/unicef_rpt/chap7.pdf)

Urban and rural areas display very different water source usages. While 60% of urban households

use water sources exclusively for themselves, 69% of rural households share their water sources with

others, and 60% of rural households use water sources owned by the community; this suggests that

fetching water is still a heavy burden in rural areas.

Many rural households in Maharashtra depend on shared wells and suffer from inadequate water

volumes. Thus, securing sufficient water remains a significant issue in rural areas.

(4) Present conditions of water contamination

As the use of ground water increased in rural areas, chemical contamination (especially that of

arsenic and fluoride) became a significant issue, as its impact on health is very serious. As shown in

the table below, water quality issues are especially serious in Rajasthan.

Among India’s water contaminations problems, bacteria, fluoride, and arsenic are the most serious

in terms of both gravity and scale.

Using small point-of-use appliances such as filters is the common way to address bacteriological

contamination, while state governments have installed special purification plants in arsenic-prone

areas.

However, no affordable, low-cost solutions for fluoride contamination suitable for low-income

populations have yet been found, and the government has been slow to address this issue because of

the high costs and technical difficulties involved. Consequently, many people suffer from fluorosis,

which can affect bones and joints.

5

Table 1-1 Affected populations by state

（Source: http://indiawater.nic.in)

The figure below compares the percentages of households using unimproved water sources by

wealth quintile. The percentage is much higher in rural than in urban areas. As household incomes

decrease, the percentage of households using unimproved water sources increases, indicating that

poor people are disproportionately affected by water contamination.

Figure1-2 Percentage of households using unimproved water sources by wealth quintile

(Source: http://mahades.maharashtra.gov.in/files/publication/unicef_rpt/chap7.pdf)

The government recommends using contaminated water for washing and bathing and water from

No StateTotal population

affectedFluoride Arsenic Iron Salinity Nitrate

1 Rajasthan 8,819,007 3,969,304 0 10,663 3,584,401 1,254,639

2 Andhra Pradesh 4,548,172 2,777,478 0 153,067 1,185,148 432,479

3 Bihar 3,977,418 451,810 245,857 3,279,278 0 473

4 Assam 3,872,447 2,122 142,606 3,727,719 0 0

5 West Bengal 3,554,608 77,910 1,297,072 2,178,657 969 0

6 Maharashtra 2,254,685 807,993 0 316,973 392,693 737,026

7 Orissa 2,051,603 60,675 0 1,776,361 206,897 7,670

8 Kerala 1,798,904 207,246 0 1,187,877 303,185 100,596

9 Karnataka 1,618,996 784,911 15,064 247,962 222,680 348,379

10 Tripura 1,386,488 0 0 1,386,488 0 0

11 Chattisgarh 958,359 28,116 0 889,977 40,266 0

12 Madhya Pradesh 692,551 590,367 0 49,591 52,593 0

13 Uttar Pradesh 453,814 160,467 139,672 51,240 101,849 586

14 Punjab 260,080 0 0 256,205 3,875 0

15 Tamil Nadu 197,427 1,579 0 179,094 16,204 550

16 Uttarakhand 95,711 10,810 0 70,919 0 13,982

17 Gujrat 93,385 13,595 0 0 0 79,790

18 Nagaland 33,602 0 0 33,602 0 0

19 Arunachal Pradesh 31,340 0 0 31,340 0 0

20 Haryana 25,735 25,735 0 0 0 0

36,773,496 9,974,818 1,840,271 15,869,820 6,112,417 2,976,170

4.Habitations with any contamination including salinity and without arsenic, fluoride and iron are counted under "salinity" column.

5.Habitations with only nitrate contamination are counted under "nitrate" column.

Total

1.Habitations with any contamination including arsenic are counted under "arsenic" column.

2.Habitations with any contamination including fluoride and without arsenic are counted under "fluoride" column.

3.Habitations with any contamination including iron and without arsenic and fluoride are counted under "iron" column.

6

safe sources for drinking. If no safe water source is available, the government recommends 1)

establishing new stand posts for safe water, 2) establishing new water sources, and 3) defluoridating

existing high-fluoride water sources.1

Chapter 2 Pilot Project

The pilot project examined the feasibility of a business model for producing and selling clean water

using Poly-Glu flocculants. The key tasks were 1) building an efficient low-cost operation

mechanism and 2) motivating local people to pay for their clean water sustainably.

(1) Business model

Nippon Poly-Glu aims to enable local communities to enjoy independent and sustainable access to

safe drinking water. Nippon Poly-Glu will supply the flocculants, and the production and sale of the

clean water is to be carried out by an NGO or a village water management committee. The intended

business model is shown in Figure 2-1below.

Figure 2-1 Intended business model

1 A.K. Susheela, “Strategy for Fluorosis Mitigation Program in India,” 4th International Workshop on Fluorosis

Prevention and Defluoridation of Water, March 2004.

Village WaterManagementCommittee

Village WaterManagementCommittee

Village WaterManagementCommittee

Nippon Poly-GluCo., Ltd.

Production and export

of flocculants

Import and salesagencies in India

NGO NGO NGO NGO

Polyglu

Village WaterManagementCommittee

Polyglu Polyglu PolygluPolyglu

7

Table 2-1 Tested business model

Entity Task Issues examined

Nippon Poly-Glu Co.

Ltd.

Production and export

of flocculants, technical

support

・ To export flocculants at a price and volume

sufficient to ensure profit.

・ To establish processes for the stable supply

of safe water

Import and Sales

agencies

Import and sales of

flocculants

・ To establish a stable and efficient sales

system for flocculants

Village Water

Management

Committee

Purchasing water and

consumption

・ To establish a mechanism for producing

and selling clean water sustainably using

Poly-Glu flocculants

・ To establish a mechanism for sustainably

recovering the costs required to carry out

the tasks listed above

NGO Production and sale of

treated water and

awareness-raising

activities

The pilot project aimed to establish a model by which an NGO can produce and sell clean water in

a village using Poly-Glu flocculants.

(2) Pilot Project

1) Project site

The natural and social conditions of Udasa village, the pilot site, were investigated. The results are

listed below.

Natural conditions

Udasa village is 38 km from Nagpur, the second biggest city in Maharashtra. It takes about an hour

by car from Nagpur to Udasa.

The village is in a flat area. It is completely dry during the dry season but experiences heavy

rainfall during the rainy season. Its annual rainfall is around 1,300 mm. Nagpur is known as the

hottest city in India. Temperatures in Udasa can reach up to 45 degree centigrade in April and May.

Social and economic conditions

Udasa has around 3,000 people and approximately 600 households. Although most inhabitants are

farmers, some are migrants working for the steel company or coal mines in the area. The village’s

main crops are soybeans and rice.

Of the village’s population, 60% are in the Other Backward Class (OBC), 20% in tribes, 15% are

Buddhists, and 5% are “others.” Village incomes are very low; the average annual household income

is between INR 21,000 and INR 40,000. A quarter of the population lives below the poverty line of

INR 21,000 per household per year.

The village’s education level, and especially that of its tribes, is low. The literacy rate for both

8

males and females is around 25%. However, the Buddhist community is highly aware of the

importance of education and has achieved a 100% literacy level. The entire village has seen an

increased interest in education, recently achieving a 100% primary-school enrolment rate for boys.

2) Baseline survey

A questionnaire survey assessing the baseline social and economic conditions of the village was

conducted on 100 samples living in Udasa. The samples consist of 60 respondents from among the

OBC, 20 from among the tribes, and 20 from among the Buddhists. The respondents were married

women with children; they had to be at least 17 years old and be able to respond to the questions and

explain their household’s conditions.

Table2-2 Composition of questionnaire

Category Questions

1. Water use Water source, Fetching water, Water consumption, Water quality,

Water treatment, Cost of treatment

2. Health conditions Level of understanding of the relation between water and health,

Health conditions, Water-borne diseases, Cost of medical treatment

3. Willingness to pay Willingness to pay, Payable amount, Concerns about water safety

4. Personal information Occupation, Education level, Monthly consumption, Number of

household members

The outcomes of the baseline survey are shown in Table 2-3 below.

Table 2-3 Summary of outcomes of baseline survey

Category Outcomes of survey

1. Water use ・ 80% of respondents use tap water from a government tank that

sources water from the river. However, many people also use water

from public wells or buy water from tankers between April and June,

when the river is dry in the dry season. For those fetching water from

a well, it takes ten to thirty minutes to reach one.

・ Water shortages and poor water quality are among the village’s

major water-related issues. More than 80% of respondents identified

water color and smell as problems.

・ Almost all respondents treat the water before drinking it, usually by

putting alum in it and filtering it with a cloth.

2. Health conditions ・ Almost all respondents understand that water can be a cause of

illness.

・ Only 20% of respondents said they had no health problems, while

80% said they had some health problems. Major health issues

include stomach ache (62), dehydration (50), and high fever (42).

skin irritation (22) and headache (18) were also cited.

・ Udasa has no medical facility. Patients go to district hospitals in

Nagpur or private doctors in Umred.

9

Category Outcomes of survey

・ As the chances of sickness are high, medical expenses are also high.

Respondents spend an average of INR 10,000 annually on medical

expenses.

3. Willingness to pay ・ 84% of respondents said they wanted to buy clean water.

・ When asked how much they would pay for 10 liters of clean water,

respondents ranged from INR 1 to INR 20, for an average of INR 2

to INR 4.

・ More than 90% of respondents expressed concerns about the safety

of Poly-Glu’s flocculants, which reveals a high level of water quality

awareness. In addition, 85% of respondents said they trusted NGOs’

opinions on water safety most highly.

Although the pilot project area has a water supply scheme, poor water quality and a high incidence

of waterborne diseases indicate the acute need for safe and clean drinking water, for which most

villagers are willing to pay. On the other hand, as people are very concerned about water safety,

customers need to have the safety of Poly-Glu demonstrated to them when they are being sold clean

water treated by Poly-Glu flocculants.

3) Implementation

The pilot project occurred between September 2013 and March 2014. Safe and clean water treated

by Poly-Glu flocculants was produced by a NGO and distributed to the local community. The project

is summarized in the table below.

Table 2-4 Summary of the pilot project

Period Sep.–Dec. 2013 Dec. 2013–Mar. 2014

Water production capacity 1 ton/time 2 tons/time

Water production volume 2 tons/day 4 tons/day

Distribution volume/house 20 liter/day 20 liter/day

# of households 70 137

Price INR 100 /month INR 100 /month

Payment 1 time/month 1 time/month

(3) Review of pilot project

The pilot project was implemented smoothly and efficiently to a successful completion due to the

efforts of the NGO that took a leading role.

The NGO’s staff was trained in setting up a water treatment facility and a water purification process.

The staff also conducted awareness-raising activities on health and sanitary issues and followed

sanitary procedures during their daily operations. The NGO’s door-to-door water delivery system

gained a good reputation among customers and helped increase the system’s customer base.

10

Despite its smooth operation, the project struggled to secure sufficient water sources, optimize

delivery, ensure proper sludge management, upgrade its awareness-raising program, and improve its

accounting. These are the main challenges for the future.

Moreover, the project ran a deficit of INR 17,000, as the cost of delivering the source water was

high, and the sales volume remained way below target. The project could be profitable if a pipeline

from the river were laid and if the sales target were achieved, as the table below shows.

Table 2-5 Operating costs necessary to produce 5.4–6 tons in Udasa

Chapter 3 Business Plan

An overview of the business plan is shown in Figure 3-1 below. In the first phase, a model for rural

water supply is established by studying the feasibility of the program’s operational mechanism and

cost recovery through the pilot project. The model is then disseminated in Maharashtra in the second

phase. Issues such as business experience, market needs, and potential business are studied in the

third phase, during which the business is rolled out throughout the country.

Figure 3-1 Overview of business plan

Items unit cost (Rs) unit subtotalClorine 460 4.5litters 2,070Transportation for delivery 350 30days 10,500Fulltime staff 4,000 5 person 20,000Parttime support staff 1,500 4 person 6,000Electricity 400 1 month 400PolyGlu 9kg 7,000

45,970Revenue 200 300 60,000

14,030

Operation Cost necessary for producing 5 .4~6tons

Total

Balance

11

(1) Business operational mechanism

The pilot project demonstrated the feasibility of establishing a water purification process and an

operational mechanism for water production and sales. It also showed that an experienced staff with

the appropriate knowledge and skills was necessary to disseminate the pilot to other areas in India.

An analysis of the pilot project resulted in the planned business model being changed from that seen

in Figure 2-1 to that seen in Figure 3-2 below.

Figure 3-2 New business model

The roles of each of the concerned program entities are described below.

Entity Role

Nippon Ply-Glu Co., Ltd. Produce and export the flocculant, provide technical advice for

NGO, conduct regular monitoring

NGO (GDIA) Import and sell the flocculant, provide technical training on

establishing facilities, water purification process, and water

quality tests as well as on conducting maintenance and

awareness-raising for village water management committee or

implementing entity

Village water management

committee/implementing

entities

Establish and maintain water treatment facility, produce and sell

water to end-users, conduct awareness raising activities for

promotion

Import and sales agency Import and sell the flocculant to private businesses and public

organizations for public works

12

(2) Profit and cost estimates

The model is to be disseminated in Maharashtra over the coming five years and then all over India

beginning in 2020. Nippon Poly-Glu’s marketing plan is shown in Table 3-1 below. The estimated

necessary volume of flocculant for one site is as was estimated for the pilot project (i.e., 219 kg per

year).

Dissemination in Maharashtra In all India

2014 2015 2016 2017 2018 2019 2020～

# of sites 3 6 20 50 100 200 300～

Sales volume 657kg 1,314kg 4.38ton 10.9ton 21.9ton 43.8ton 65.7ton

Sales amount 413,391 827,820 2,759,400 6,898,500 13,797,000 27,594,000 41,391,000

Sales cost 377,055 786,429 2,621,430 6,523,650 13,107,150 26,214,300 39,321,450

Operating

profit

36,336 41,391 137,970 374,850 689,850 1,379,700 2,069,550

Installing a water treatment facility and starting operations in three villages, including Udasa, are

planned for 2014. Successful pilot projects and clear developmental impacts will facilitate state

government approval to disseminate the technology. Operational profits for Nippon Ply-Glu are

estimated to reach 1,379,700JPY if the project expands as planned and facilities are installed in

2,000 villages by 2019.

Chapter 4 Possibility of collaborating with other JICA schemes

(1) Possible public funding to apply

Nippon Poly-Glu’s business model is to secure profit only by exporting its flocculants; it will not

be involved in selling clean water to consumers. This model is easy to adjust to local conditions, and

its operational costs are low. The model is considered effective in areas where people’s purchasing

power is low.

On the other hand, maximizing profits and making the business sustainable require increasing

flocculant sales. Replicating the business model examined in this study to other areas is thus

important. The most serious bottlenecks impeding this process are the initial capital needed to secure

source water and the need to establish the necessary infrastructure and the water treatment facilities.

Although the expenditure required depends on local conditions, a half million to a million Japanese

yen are sometimes needed. It may be difficult to cover the cost using only the fees collected from the

customers; public funding is thus necessary to cover this kind of initial cost.

Two schemes are applicable to this project.

Table 4-1 Possible public funding sources

Scheme Funding

organization

Possible support Funding

13

Grant assistance for

grassroots projects

Embassy of Japan Infrastructure development,

provision of equipment

JPY 10 million

Pilot survey for

disseminating SME’s

technologies

JICA Infrastructure development,

provision of equipment and

technical assistance

JPY 100 million

The former scheme supports equipment installation as an initial investment in a single NGO project

site. Although its application and selection processes are simple and quick, it cannot be applied to

large scale or multiple project sites.

The latter scheme verifies and disseminates the products and technologies of Japanese small and

medium enterprises (SMEs) in response to the needs of developing countries. This scheme requires a

government agency to act as an implementation organization.

(2) Scenario applying pilot survey

1) Basic concept

・ To examine the feasibility of a low-cost water supply model using Poly-Glu flocculants in the

fluoride-affected areas of Maharashtra.

・ The government of Maharashtra will be the implementation organization.

・ The pilot will be implemented as a part of the NRDWP. The fund will cover infrastructure

development, the installation of treatment facilities, and technical assistance. If the pilot is

successful, the model may be spread through the NRDWP to other areas or states. The

operational mechanism of the model is shown below:

Installation of treatment facility and infrastructure development: central and state

governments

Ownership of facilities: village water management committee

Management of facilities: village water management committee

Facility operation, including cost recovery: NGO

2) Discussion with the counterpart organization

Three meetings were held with the Director, Water Supply and Sanitation Department, Government

of Maharashtra, in December 2013 and in January and April 2014. He was particularly interested in

the ability of Poly-Glu flocculants to remove fluoride. As the water sources of some areas in

Maharashtra suffer from fluoride contamination, they require a low cost technology for removing

fluoride safely. However, they requested more detailed information on the safety of Poly-Glu

flocculants and the water produced by it as well as on its production cost.

Chapter 5 Development Impacts

(1) How to measure development impacts

A baseline survey was conducted to assess the social and economic conditions and water usage of

the people living in the pilot village before the pilot project began. An endline survey was also

14

conducted on the same samples used for the baseline survey as well as on people who bought water

cleaned by Poly-Glu during the pilot period just before the pilot project was completed. The results

of the endline survey were compared with those of the baseline survey to evaluate the development

impacts.

(2) Targeted development impacts and indicators

The project aims to improve the health and economic conditions of its beneficiaries by improving

their access to safe drinking water. However, as observing clear changes within the limited study

period would be difficult (since health and economic conditions take a long time to change), it was

decided to include satisfaction levels along with water quality as a development indicator.

(3) Outcomes of endline survey

The endline survey was conducted using a questionnaire. The samples consist of 34 OBC, 48

tribal, and 39 Buddhist Poly-Glu-treated water customers and 39 OBC, three tribal, and

five Buddhist non-Ply-Glu-treated water customers. The results of the survey are shown in

Table 5-2 below.

Table 5-2 Summary of endline survey results

Category Outcomes of survey

1. Satisfaction with

water

・ % of respondents who have problems with the water they use

decreased drastically.

・ % of respondents who said that their water quality is poor decreased

from 83％ to 33％: bad taste issues went from 42％ to 12％,

muddiness issues went from 94％ to 29％, smell issues went from

83％ to 2％, and color problems went from 97％ to 10％.

・ % of respondents with water shortages remained unchanged. This

problem was not solved.

・ Almost all customers are satisfied with the quality of

Poly-Glu-treated water.

・ The customers like Poly-Glu-treated water because of its lack of

color and taste.

・ % of respondents who were concerned about the safety of

Poly-Glu-treated water decreased from 94% to 0%.

・ About half of the customers want to continue buying

Poly-Glu-treated water even though the price rose to INR.150.

2. Health conditions ・ Large improvements were observed in many aspects of health. The

number of respondents with stomach aches decreased from 62% to

33%, that with skin irritation issues went from 22% to 1%, and that

with dehydration problems went from 50% to 4%.

・ The rate of health problems concerning Poly-Glu-treated water

customers is much lower than of non-customers.

・ 65% of respondents feel that their health improved after they started

15

drinking Poly-Glu-treated water.

3. Economic conditions ・ Employment was created for six people.

・ No change was observed in the number of people who buy tanker

water.

・ Average annual medical expenses decreased from INR 11,000 to

INR 4,810.

・ Average medical expense of customers in the past six months is

much lower than that of non-customers.

The outcome of the survey showed that, despite the limited study period, the pilot project for

supplying safe water treated by Poly-Glu flocculants offered significant developmental impacts on

both the health and economic conditions of the target beneficiaries.